The Finance Blogger


What Are Credit Card Interest Rates

What Are Credit Card Interest RatesWe all use credit cards and in fact many of us have more than one credit card. In fact the average person will have 3 to 4 credit cards. Most of us will pay the balance off each month on the due date and the credit card companies do no make much money from us. They collect two to 3 percent from the store where you make your purchase and that is all they will make from customers who pay their balance completely every month.

Credit Card Interest Rates

For those customers who for one reason or another who cannot repay the full balance each month by the due date, it is a much different story. The credit card companies make a lot of money from these people by charging them a very high interest rate. Most cards have a rate of between 18% and 20% that is charged on the unpaid balance. Store credit cards charge as high as 29%. There are some companies that charge lower interest rates, however there is usually a catch to these cards. Either there is an annual fee or they give you a grace period for 6 months and then the interest rates revert to the normal high interest rate.

How are the Interest Charges Calculated?

The first thing we want to say is that you need to read the fine print in the agreement to truly understand how your credit card charges interest. You may want to talk to someone to have them explain it to you. They are all slightly different and although we will give you a general explanation, we are urging readers to consult with their credit card company to confirm how interest is calculated on the unpaid balance.

For most credit cards the following rules apply:

No interest is calculated provided that you pay the full balance on your card by the due date. If you are even one day late interest will be added to your balance and you will be surprised by the amount that you are being charged.

If the unpaid balance is not paid, interest will be charged from the date all items on your statement were initially charged to your card. You have lost the 20 days grace period and are now paying interest on everything until it is fully repaid.

New charges to your  credit card will also be charged interest from the day the item was added to your account until you no longer have a balance on your card.

Interest will be calculated on the daily balance of your credit card and it is compounded which means you are paying interest on interest. This can get very expensive.

Interest will be calculated and charged until the date that you fully repay the balance on the credit card.

Credit card statements always show the minimum payment that you need to pay by the due date. They want you to pay this amount since this guarantees that your interest costs will be maximized and it will take years for you to repay your balance if you stick to this rate. Always pay the maximum you can afford to pay as soon as possible to minimize the interest charges. This is an extremely expensive loan and many readers will benefit from debt consolidation loans if you cannot repay your credit card balance any time soon.

For more articles on credit card interest rates, click here.

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